Generally speaking, no one may receive profits from the sale of alcoholic beverages if they do not hold a permit. However, sometimes franchisor agreements and lease agreements contain provisions that require the permit holder to pay a percentage of their gross sales (including alcohol sales) or a specific amount of money from alcohol sales to the franchisor or landlord.
Such payments to the franchisor or landlord are allowed under narrow circumstances that will be reviewed closely by the Department. These arrangements will be approved provided the franchisor or landlord does not:
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Control the operations of the permit premises;
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Direct the sales of alcoholic beverages from the permit premises; or
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Otherwise engage in activities indicating ownership of the franchisee or tenant.
In reviewing whether a franchisor or landlord is control operations, directing sales, or engaging in activities indicating ownership, the Department will review:
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The percentage of profits the franchisor or landlord will receive from the backer;
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Who may supervise, hire, retain, or fire employees;
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Who sets the menu selections or prices for the permit premises;
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Who determines the hours and days of operation for the permit premises;
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Who decides whether to add a patio to the premises for the permit premises;
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Who orders or accepts deliveries of alcoholic beverages for the permit premises;
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Who arranges advertising (print, online, and social media) for the permit premises;
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Who dictates decorations for the permit premises;
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Who has access to banking accounts for the permit premises;
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Who can incur debt for the backer; and
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Who can enter into agreements with other entities on behalf of the backer.
Note that sometimes the Department may require the franchisor or landlord to become a backer of the permit. This may happen when the factors explain above show that franchisor or landlord is receiving a high percent of alcohol sales or exercising significant control over the business.